Opinion
98 Civ. 1544 (RWS)
October 5, 2000
DAVID J. JORDAN, ESQ. and MARK E. HINDLEY, ESQ., STOEL RIVES LLP, Salt Lake City, UT; JAMES BRANDT, ESQ. and NICOLE SCHWARZ, ESQ., LATHAM WATKINS, New York, NY, Of Counsel, Attorneys for Plaintiff.
NEIL FELLENBAUM, ESQ., ZEGEN FELLENBAUM, New York, NY, Of Counsel and STAN GOODMAN, ESQ., GOODMAN SAPERSTEIN, Garden City, NY, Of Counsel, Attorneys for Settlement Defendants.
OPINION
Plaintiff Pretzel Time, Inc. ("Pretzel Time") moves to enforce an oral settlement agreement it alleges it entered into on March 31, 2000 with defendants Pretzel International, Inc. ("Pretzel International"), Whitman Pretzel Corp. ("Whitman Pretzel"), Westchester Pretzel Corp. ("Westchester Pretzel"), New York Pretzel Corp. ("N.Y. Pretzel"), Pretzel Management Corp. ("PMC") (collectively the "corporate defendants"), Ronald Orfinger ("Orfinger"), John Novick ("Novick"), Gary Marcus ("Marcus"), Edward T. Davison ("Davison"), and H. Sinan Berkay ("Berkay") (collectively the "settlement defendants"). For the reasons set forth below, the motion is granted.
The Parties
Pretzel Time is a Pennsylvania corporation with its principal place of business in Utah.
Pretzel International, Whitman Pretzel, Westchester Pretzel, N.Y. Pretzel, and PMC are New York corporations with the principal place of business in New York.
Orfinger is an individual residing in the state of New York.
Novick is an individual residing in the state of New York.
Marcus, Davison, and Berkay are individuals residing in the State of New York.
Prior Proceedings
The initial complaint in this action, filed on March 3, 1998 (the "Complaint"), alleged, inter alia, trademark infringement, trade name dilution, trade dress infringement, unfair competition, fraud and conversion. The prior proceedings in this case are described in a prior opinion of this court, Pretzel Time, Inc. v. Pretzel International, No. 98 Civ. 1544 (RWS), 1998 WL 474075 (S.D.N.Y. Aug. 10, 1998), familiarity with which is assumed.
The instant motion was filed on June 16, 2000 and deemed fully submitted upon the filing of the settlement defendants' memorandum in opposition to the enforcement of the settlement agreement on July 13, 2000.
Facts
Defendant Novick was noticed for deposition on March 31, 2000. He appeared with counsel Stanley Goodman ("Goodman"), who also represented the other settlement defendants. Before the deposition began, Novick and Goodman proposed that the parties attempt to negotiate a settlement.
For approximately four and a half hours Novick and Goodman negotiated with Pretzel Time's senior vice president, Michael Ward ("Ward"), and counsel for Pretzel Time, David J. Jordan ("Jordan"). Near the end of this time period, Jordan wrote out the proposed agreement in longhand on a legal pad and read it back to Goodman and Novick. Jordan then read the agreement into the record via a court reporter who was present for the scheduled deposition. The parties disagree as to whether Novick was present while Jordan read the agreement into the record. After reading the stipulation into the record, Jordan asked Goodman to stipulate on behalf of the settlement defendants that what he had just read constituted "the agreement in principle." (Ward Aff. Ex. 2 at 7 l.14-18.) The sworn transcription of the deposition reflects that Goodman replied, "I will stipulate that that is the agreement in principle and it may require some further non-substantive refinement." (Id. at l. 19-21.) The parties then broke for lunch. It is unclear whether any additional meetings or negotiations took place later that afternoon.
Goodman disputes this transcription, claiming that he in fact said that the agreement might require "substantive" changes. This contention will be discussed below.
The agreement provided in relevant part that Pretzel International-owned New York Pretzel stores in several specified area malls would convert into franchise locations of Pretzel Time; that Pretzel Time had an option to purchase those stores for three million dollars within eighteen months of the entry of an order of dismissal; that Pretzel International would assign the "New York Pretzel" name, logo and associated intellectual property to a Pretzel Time franchisee except for use in the frozen pretzel business; and that Pretzel International would not compete with Pretzel Time in the "retail baked and twisted on premises hot pretzel business" for five years after the date of entry of an order of dismissal of the lawsuit. (Id. at p. 3-6.)
Two months later, the plaintiff sought "to memorialize the settlement agreement in a signed pleading." (Pltf. Mem. at 6.)
That document, while otherwise substantively identical to the agreement read into the record at Novick's deposition, included a "merger clause" stating that "[t]his Agreement and any exhibits attached thereto represent the sole and entire agreement between the parties and supersede all prior agreements, negotiations, and discussions between the parties hereto and/or their respective counsel with respect to the subject matter covered hereby." (Novick Aff. Ex. A ¶ 13.) Upon receiving this document, counsel for the settlement defendants notified the plaintiff's counsel that the settlement defendants did not agree to the above-referenced provisions relating to store conversion, assignment of intellectual property, and non-competition.
Plaintiff brought this motion to enforce the agreement as read into the record on March 31, 2000.
Discussion I. Contract Formation A. Legal Standard
The question at issue is whether the parties formed a valid oral agreement to settle a trademark dispute, and if so, whether it is enforceable.
Whether a binding agreement was made "depends on the parties' words and deeds which constitute objective signs in a given set of circumstances." Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir. 1985). In Winston, the Second Circuit applied New York common law in establishing a four-part test to decide whether a settlement agreement was in fact made.
New York common law provides that parties are free to enter into oral contracts as long as both parties have an intent to be bound.
Under Winston, courts must weigh the following four factors: (1) whether there is any express reservation of the right not to be bound in the absence of a signed writing; (2) whether the settlement contract has been partially performed; (3) whether all of the terms of the alleged settlement contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing. Ciamarella, 131 F.3d at 323; Winston, 777 F.2d at 80 (citing R.G. Group, Inc. v. Horn Hardart Co., 751 F.2d 69, 74 (2d Cir. 1984)). None of these factors alone is dispositive. Id.
B. Discussion 1. Express Reservation
Courts look both to the oral agreement itself and to the parties' subsequent communications to determine whether there was an express reservation of the right not to be bound. In Ciamarella, the Second Circuit found that there was an express reservation where the oral agreement itself provided that it "shall not become effective . . . until it is signed" on the "Execution Date." 131 F.3d at 324. No such language appears in the March 31, 2000 agreement. Furthermore, there is no subsequent correspondence between the parties (other than the proposed written version of the agreement) suggesting the parties intended the March 31, 2000 agreement to be subject to finalization in a later document. Cf. Winston, 777 F.2d at 81 (finding no intent to be bound where subsequent correspondence stated that oral agreement was "subject to consummation" upon later drafting).
An oral contract may be binding even if the parties plan to create a documentary record of the agreement. See Evolution Online Systems, Inc. v. Koninklijke PTT Nederland N.V., 145 F.3d 505, 508 (2d Cir. 1995); Winston, 777 F.2d at 80 ("freedom to contract orally remains even if the parties contemplate a writing to evidence their agreement. In such a case, the mere intention to commit the agreement to writing will not prevent contract formation prior to execution."); R.G. Group, Inc. v. Horn Hardart Co., 751 F.2d 69, 74 (2d Cir. 1984).
The defendant argues that the inclusion of a "merger clause" in the subsequently prepared memorialization of the March 31, 2000 agreement is evidence that there was no intent to be bound. In particular, the settlement defendants contend that the fact that Pretzel Time's counsel included language providing that the written contract would "supersede all prior agreements" is dispositive. See Ciamarella, 131 F.3d at 324; R.G. Group, 751 F.2d at 76; McCoy v. New York City Police Dep't, No. 95 Civ. 4508 (RPP), 1996 WL 457312, *2 (S.D.N.Y. Aug. 14, 1996). However, the issue here is whether Pretzel Time, (the party now contesting the validity of the oral agreement), intended to be bound, not whether Pretzel International, (the party seeking to enforce the agreement), intended to be bound. The fact that plaintiff's counsel added boilerplate language to an otherwise substantively identical version of the oral agreement does not undermine the evidence that the settlement defendants intended to be bound by the oral agreement.
Absent any evidence of an intent not to be bound by the oral agreement, this Winston factor weighs in favor of enforcing the contract.
2. Partial Performance
There has been no performance pursuant to the oral settlement. However, due to the nature of the agreement, Pretzel Time was unable to perform its obligation under the settlement agreement after the defendant refused to comply.
3. Terms Remaining to be Negotiated
In deciding whether terms remained to be negotiated, "[e]ven `minor' or `technical' points of disagreement in draft documents" are probative. Ciamarella, 131 F.3d at 325.
In this case, both parties agreed that the oral stipulation constituted an agreement "in principle." (Pltf. Mem. Ex. A at 7 l. 13, 20.) Whether the word used was the word written, or whether it was intended to be understood as "an agreement in principal," as defendants allege, makes no difference. The meaning of the phrase "in principle, see Webster's New Collegiate Dictionary 915 (8th ed. 1977) ("with respect to fundamentals"), is not substantially different from that of the word "principal," see id. ("most important, consequential, or influential"), or the term of art, "agreement in principal," see Henchman's Leasing Corp. v. Condren, et al., No. 87 Civ. 6478 (PNL), 1989 WL 11440, *4 (S.D.N.Y. February 8, 1989) (stating that "[i]t is convention . . . in contract negotiation to use the words `agreement in principal' to describe the circumstance wherein the negotiations have reached a common understanding on fundamental terms of a proposed contract."). In either case, the parties stipulated to the fact that the oral agreement contained all of the fundamentals of the settlement.
Pretzel International argues that the oral agreement included inconsistencies and ambiguities, and that as a result, terms remained to be negotiated. Goodman further contends that, contrary to the transcription, he in fact stated on March 31, 2000 that the agreement as read to the court reporter may require some "substantive" — not "non-substantive" changes. (Goodman Aff. ¶¶ 7-8.) But Goodman did not immediately object to the transcription, and, more importantly, how to interpret the terms of the contract as recorded is a different question than whether or not the parties agreed to them. As discussed above, the parties' own statements on March 31, 2000 point to a conclusion that they had reached fundamental consensus and that all significant terms had already been agreed upon.
4. Type of Agreement that is Usually Reduced to a Writing
Finally, the particular agreement in question, which provides for the option to purchase stores valued at over three million dollars, a payment rate of a percentage of gross sales the permanent transfer of various intellectual property rights and a five year "non-compete" period, would typically be the sort of complex agreement that would be reduced to writing. See, e.g., Winston, 777 F.2d at 83 (finding that $62,500 contract involving payment based upon a percentage of earnings over several years to by the sort of agreement typically reduced to writing).
However, New York law does contemplate the formation of binding oral settlements. The rationale behind the requirement of a writing is to ensure sufficient indicia of reliability as well as a memorialization of the agreement for future reference, particularly in complex cases. The fact that the oral agreement in this case was documented in a certified court reporter's transcript provides both these safeguards.
Thus, balancing the four Winston factors — three of four of which favor enforcing the oral agreement — suggest that this is not a case where "the entire history of the parties' negotiations made it plain that any promise or agreement at the time was conditional upon the signing of a written contract." R.G. Group, 751 F.2d at 79. The fact that one of the parties had later misgivings does not undermine the binding nature of the agreement as made on March 31, 2000.
II. Enforceability A. Legal Standard
Once it is established whether an agreement was in fact made, New York's oral settlement statute, CPLR § 2104, governs whether or not the agreement is enforceable. See, e.g., Sears, Roebuck Co. v. Sears Realty Co., Inc., 932 F. Supp. 392, 403 (N.D.N.Y. 1996). Section 2104 provides that an oral settlement is binding on the parties if (1) it is made "in open court," and (2) it expresses each party's intent to be bound by the terms of the agreement. CPLR § 2104(3); Giambattista v. Giambattista, 454 N.Y.S.2d 762 (4th Dept. 1982). The "open court" provision requires that formalities are followed in order to ensure accuracy, as a limited exception to the statute of frauds. See Jacobs v. Jacobs, 229 A.D.2d 712, 715, 645 N.Y.S.2d 342, 344-45 (N.Y. A.D. 1996) ("if there is an open court stipulation with all the authenticity it carries based on a supporting transcript, then the Statute of Frauds is not applicable . . . It is the formality of the open-court proceeding and the authenticity provided by the transcript which are relevant to the Statute of Frauds issue. . .").
B. Discussion
As discussed above, the parties did intend to be bound by the agreement. The only question remaining with regard to the enforceability of that agreement is whether it was made "in open court." This requirement is more figurative than literal:
The open court provision does not require that the settlement actually take place in a courtroom before a judge. Rather, settlements undertaken with less formality but with similar indicia of reliability have been held to meet this provision. "Open court . . . is a technical term that refers to the formalities attendant upon documenting the fact of the stipulation and its terms, and not to the particular location of the courtroom itself. . . . [T]he importance of the "open court" requirement is to ensure that there are some formal entries . . . to memorialize the critical litigation events.
Willgerodt v. Hohri, 953 F. Supp. 557, 560 (S.D.N.Y. 1997) (citing Popovic v. New York City Health and Hospitals Corp., 180 A.D.2d 493 (N.Y. A.D. 1992)).
Courts have consistently held that oral stipulations recorded by a court reporter satisfy the "open court" requirement.
For example, as in this case, in Penn Columbia Corp. v. Cemco Resources, Inc., No. 88 Civ. 0667, 1990 WL 6555, at *4 (S.D.N Y 1990), the parties reached an oral settlement agreement at a deposition of the defendant's officer, where the plaintiff's attorney dictated the terms of the settlement to a court reporter. Id. at *1. The court held that dictating the agreement to the court reporter met the "open court" requirement of § 2104 and enforced the settlement. Id. at *4. See Hub Press v. Sun-Ray Lighting, 420 N.Y.S.2d 443 (N.Y. Civ. Ct. 1979) (same).
In this case, the parties and their respective counsel negotiated a settlement for several hours. Plaintiff's attorney wrote out the agreement and, in the presence of at least the settlement defendants' attorney, read to a court reporter who rendered a certified transcript of the event. The formalities attendant to this recording satisfy the "open court" requirement.
As such, Pretzel Time has proved that the requirements of CPLR § 2104 have been met, and the agreement is therefore enforceable.
Conclusion
For the foregoing reasons, Pretzel Time's motion to enforce the oral settlement agreement is granted.
Settle judgment on notice.
It is so ordered.